The Great Apple Debate...In 4 Questions

Last month, FBR & Co initiated on Apple Inc. AAPL and set a $185 price target -- equaling a market valuation of more than $1 trillion.

Now, the firm is updating its thesis on Apple and sees a "massive" opportunity in China.

Along with their thesis, FBR also highlighted four debatable points surrounding Apple.

The Great Apple Debate

1. Can Apple Watch succeed?

FBR: "Given the Apple brand/unmatched consumer base, we think the wearables category potentially has a silver bullet product that can start to move consumers toward this new avenue of technology growth and drive adoption of the Apple Watch. Ultimately, while the jury is out, management recently indicated that to date demand has exceeded supply, and we think a massive land grab opportunity in technology could open up another door for enterprises looking to create applications, services, and solutions around the wearables market with Apple in the lead."

Related Link: FBR: Apple Worth $1 Trillion

2. Will Apple continue to grow at its massive size?

FBR: "We believe Apple can continue to deliver healthy growth over the coming years (as evidenced by solid F2Q15 results) as the company remains well positioned in a number of key areas, such as China, wearables, Apple TV, and Apple Pay. While we acknowledge that Apple s massive iPhone segment (approximately 55% of revenue) remains vulnerable to fickle consumer preferences, the company's core advantage lies in its tightly integrated software ecosystem and services segment, which we anticipate will help gross margins/profitability over the next 12 to 18 months, in our view."

3. Will future iPhone launches continue to succeed?

FBR: "We are confident that Apple can continue to generate solid demand for its all-important iPhone product line given the benefits of its tightly integrated ecosystem of devices, leading innovation, and strong secular growth trends (mobile/BYOD). Furthermore, while it has been almost eight years since the first iPhone launch, we believe iterative updates to the hardware/software continue to drive strong demand in developed markets, with new features (Apple Pay) and developing markets (China) in the very early innings of another major growth opportunity."

4. What's next on the capital allocation front?

FBR: "We applaud Apple s recent (April 27) update to the company's capital allocation strategy as it raised its massive capital return program from $130 billion to $200 billion through March 2017 given a dividend increase and larger share repurchase authorization. To this point, Apple raised its quarterly dividend 11% to $0.52 and share repurchase plan from $90 billion to $140 billion. With $65 billion in free cash flow anticipated for FY15, we believe there is room for more in coming years."

Apple shares are down slightly in Monday's pre-market trading, near the $128.50 range.